Michigan Preps Consultants, Local Leaders For Budget Battles

Michigan, one of the most financially troubled states in the country, is rolling out a new training program along with the Turnaround Management Association aimed at educating both government officials and corporate restructuring professionals about the pitfalls of dealing with distressed municipalities.

The education program, highlighted in a TMA seminar Thursday, comes in conjunction with a new state law that greatly expands the powers of state-appointed emergency managers. The training is intended to better prepare Michigan cities, counties and school districts to take on budget shortfalls and debt woes.

The law enacted earlier this month hands appointed emergency managers complete control of a distressed local government’s finances and gives that individual the right to revoke, modify or terminate collective-bargaining agreements with public workers’ unions in order to bring the municipality’s expenditures in line with tax revenues.

Along with those expanded powers, the state is providing training to both restructuring professionals that may serve as emergency managers and local officials who want to address financial problems before a state takeover is necessary.

Mayors and school superintendants are essentially running big businesses that, in many cases, are more complicated than private companies, Michigan Treasurer Andy Dillon said while speaking about the new program during the seminar on municipal distress.

“That superintendent could be a great teacher and school administrator but likely has limited background in dealing with a budget,” he said. “There is a lot more that we can do to help local units of government.”

The state has worked with TMA to develop a training program on municipal distress. The first event in February attracted 65 attendees, and more than 200 are expected to attend a second session next month.

The program provides training to two groups simultaneously–government officials and restructuring consultants.

Municipal leaders learn about strategies for addressing debt, consolidating services with other jurisdictions and negotiating with employees from experts, many who have tackled similar issues in the corporate world.

Consultants, in turn, learn about how open meetings and freedom of information laws make nearly all labor negotiations and budget talks a mater of public record and how politically powerful groups such a police officers and teacher unions make municipal restructuring a political hot potato.

Edward Plawecki, general counsel at advisory firm Stout Risius Ross Inc. who participated in Thursday’s seminar, said one of the best benefits of the training is connecting municipal leaders and professionals and having them talk about how to avoid distressed situations.

“The goal is to avoid emergency managers and avoid the possibility of a Chapter 9 bankruptcy that a financial crisis can create,” said Plawecki, a former state judge and county commissioner.

No Michigan municipality has ever filed for bankruptcy, but a few have come close. State officials denied the city of Hamtramck’s request to file last year as it wrangled with neighboring Detroit over tax revenues from a General Motors Co. plant. An emergency financial manager appointed in 2009 to run the Detroit Public Schools hired a bankruptcy law firm to help complete an out-of-court debt restructuring.

The training sessions also gave emergency managers appointed under a previous state law a chance to tell some war stories, Plawecki said. One of those managers found that a municipality was issuing checks to 18 people who were not employees.

While extreme, the example showed the depths of the issues facing some municipalities. Plawecki said it’s not uncommon for emergency managers to bring in forensic accountants to untangle contracts, payroll and billing practices.

TMA board member and Grant Thornton LLP principal Michael Imber, who led Thursday’s seminar, said the training program and establishment of a “government division” of the association in Michigan is a model that the 9,000-member organization hopes to replicate elsewhere in the country.

“We think that Michigan is terrific example for other states that are interested to follow,” he said.

About Bankruptcy Beat

From Dow Jones Daily Bankruptcy Review, exclusive coverage of corporate bankruptcies, companies headed for trouble and the latest trends in bankruptcy law, distressed investing and corporate restructuring. Lead writer Pat Fitzgerald and Daily Bankruptcy Review reporters in Washington, New York and Wilmington, Del., provide insight into the big cases, who’s next to fall and what’s making news across the bankruptcy market.